[Aaus-community-list] Eurasia Daily Monitor -- Volume 6,
Issue 150 [excerpt]
brdcst at jamestown.org
Wed Aug 5 22:40:14 EDT 2009
[excerpt republished with permission -- RDL]
5, 2009-Volume 6, Issue 150
IN THIS ISSUE
*Russian military in Georgia testing international response to incidents
*...while Washington's supports Tbilisi politically and financially,
but not with arms
*IMF rescues the Ukrainian economy, though challenges remain
*Putin prepares to sign new energy agreements in Ankara
**New in the Jamestown blog on Russia and Eurasia
- What was the Iranian Delegation Doing in Abkhazia?
International Assistance Granted to Support Ukrainian Economy
Several recent international decisions relating to Ukraine have shown
that attitudes toward the local economy have improved following signs
of stabilization. The International Monetary Fund (IMF) approved the
allocation of another loan tranche, a rating agency expressed
optimism on the sovereign ratings, and the European Commission (E.C.)
- the executive arm of the European Union - organized a loan to help
Naftohaz Ukrainy, the state-owned oil and gas behemoth, pay for
Russian gas. This should help Ukraine to prepare for a possible
second wave of the financial crisis during the fall when the country
faces payments on several large foreign debts. Moreover, pressure on
the national currency is mounting, which will present further
challenges for the Ukrainian economy.
Initial uncertainty over the IMF's loan decision triggered the
hryvnia's plunge against the main currencies in late July, showing
the extent to which the weak national economy depends on foreign
financing. Although the hryvnia's official rate dropped by only 1
percent in July, the street rate plunged by as much as 4 percent to
over eight hryvnias per dollar. The central bank suggested that this
had resulted from the payments of Ukrainian banks and companies on
foreign loans being increased in July raising the demand for foreign
currency -weakening the hryvnia. The news about the IMF's approval of
the $3.3 billion third tranche of the $16.4 billion standby loan to
Ukraine, which came on July 29, stabilized the hryvnia almost
immediately (www.bank.gov.ua, August 4).
This tranche allocation was smooth compared to the discussions
between the IMF and the government of Prime Minister Yulia
Tymoshenko, which preceded the allocation of the second $2.8 billion
tranche in May. The IMF apparently trusts that Tymoshenko will follow
its recommendations to proceed with reform and abstain from economic
populism despite admonitions from her arch-rival President Viktor
Yushchenko. The IMF in its press release praised the recent increase
in the domestic price of gas by 20 percent aimed to bring it in line
with international prices in order to reduce the budget deficit of
Naftohaz. The IMF also noted that the central bank demonstrated its
readiness to tighten fiscal policies to withstand inflation and
exchange rate pressures (www.imf.org, July 28).
Following the IMF's positive decision, Standard and Poor (S&P), the
international rating agency, revised its outlook on Ukraine's debt
obligations from "negative" to "positive." S&P said this reflected
the recent progress in structural reform in the budget and financial
sectors, which allowed Ukraine to qualify for the IMF loan. S&P also
praised the "strong and coordinated banking measures" which helped to
improve depositor confidence as the outflow of private deposits from
banks stopped by the summer. Similarly, S&P noted that political and
economic risks remain ahead of the January 2010 presidential
election, which prevented it from upgrading Ukraine's weak ratings,
rather than just the outlook on the country's economy
(www.standardandpoors.com, July 31).
Finally, Tymoshenko's efforts to borrow money to help the debt-ridden
Naftohaz pay for Russian gas have proven successful. The E.C.
declared on July 31 that international financial institutions were
ready to lend a total of $1.7 billion to Naftohaz: $750 million
should come from the European Bank for Reconstruction and
Development, $450 million from the European Investment Bank and $500
million from the World Bank. The E.C. said that the loans should
allow Ukraine to ensure the uninterrupted transit of Russian gas to
Europe (Kommersant-Ukraine, August 3). Ukraine asked Russia last
winter for a $5 billion loan for Naftohaz, but Prime Minister
Vladimir Putin following the March Ukraine-E.C. accords on gas sector
reform, with which he was unhappy, advised that Ukraine should turn
to the E.C. Tymoshenko did so, but she asked for less ($4.2 billion).
The E.C., however, decided that $1.7 billion would suffice to ensure
that Naftohaz buys enough gas for storage in the winter.
This does not solve all of Naftohaz's problems as it will have to
redeem its $500 million Eurobond on September 30. Here the IMF came
to rescue again: the entire $3.3 billion third tranche can be used by
the Ukrainian government to service foreign debts, including
Naftohaz's Eurobond as well as payments for Russian gas deliveries,
the IMF said (www.imf.org, July 29).
Support from international financial bodies is very important for
Ukraine ahead of the peak of payments on its foreign debts this year,
which is expected in August and September. In particular, Ukraine
will have to redeem sovereign Eurobonds worth $500 million and $250
million worth of Eurobonds of the state-controlled Ukreximbank in
August, and sovereign Eurobonds worth 768 million Swiss francs ($720
million) in addition to Naftohaz's Eurobonds in September (Zerkalo
Nedeli, August 1). Another issue to note is that Ukraine should boost
Russian gas purchases later in the year to compensate for low
purchases in early 2009 when gas was more expensive, so payments to
Gazprom are also set to grow possibly up to $1 billion per month.
The Eurasia Daily Monitor is a publication of the Jamestown
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